Chapter

Chapter 3 Activities of the Fund

Author(s):
International Monetary Fund
Published Date:
September 1982
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Overview of the Year

This chapter reviews the principal activities of the Fund during the financial year ended April 30, 1982. These activities relate to financial policies, operations and transactions, surveillance over members’ exchange rate policies, consultations with member countries, training and technical assistance, and relations with other international organizations.

During the financial year ended April 30, 1982, the conditional liquidity provided by the Fund through the General Resources Account increased substantially in terms of aggregate commitments as well as in gross and net purchases. (See Table 20.) Gross purchases by members increased from about SDR 4.4 billion in 1980/81 to SDR 7.0 billion in 1981/82, and net purchases from SDR 1.9 billion to SDR 5.0 billion—the highest level of net purchases since 1974. On the other hand, there was no addition to the stock of unconditional liquidity after the last SDR allocation in 1981, the last year of the third basic period. Likewise, with the termination of the Trust Fund loans program in 1980/81, fresh activity in the largest administered account of the Fund also ceased. Consequently, the net increase in the Fund’s balance of payments assistance to members occurred almost wholly through the General Resources Account (mainly in the upper credit tranches) in the form of conditional liquidity, unlike in the previous three years when the bulk of such assistance was in the form of unconditional liquidity (SDR allocations) and low-conditionality finance (Trust Fund loans). All the balance of payments assistance made available by the Fund in 1981/82, as well as new commitments, was to non-oil developing countries. During 1981/82, the first payments (grants) were made under the supplementary financing facility subsidy account. This account was established in December 1980 to reduce the cost for low-income developing member countries of using the Fund’s resources under the supplementary financing facility and under the policy on exceptional use of Fund resources.

Table 20.Selected Financial Activities by Type and Country, 1976-82(In millions of SDRs)
Financial Year Ended April 30
19761977197819791980198119821976-82
By Type
I. General Resources Account
Gross purchases15,267.44,749.72,367.31,239.22,210.84,385.96,960.227,180.5
Net purchases2(4,866.6)(3,899.6)(-1,861.8)(-3,267.2)(-1,041.8)(1,924.2)(4,950.3)(9,469.9)
II. Administered Accounts
Trust Fund loans31.7268.2670.0961.71,059.92,991.3
Oil facility subsidy account
payments (grants)13.827.525.019.127.850.19.3172.6
Supplementary financing
facility subsidy account
payments (grants)22.922.9
III. SDR allocations4,032.64,033.24,052.512,118.3
Total5,281.24,808.92,660.55,960.97,233.59,548.46,992.442,485.6
By Country (I + II + III)
Industrial countries2,391.32,198.11,438.82,593.72,617.62,543.913,783.4
United States874.1874.1857.32,605.5
United Kingdom1,000.01,700.01,250.0304.2304.2298.34,856.8
Italy780.290.0129.0128.9126.51,254.6
Others611.1498.198.81,286.41,310.41,261.85,066.6
Developing countries2,889.92,610.81,221.73,367.24,615.97,004.26,992.428,702.2
Od exporting369.3369.3380.31,118.9
Non-oil developing2,889.92,610.81,221.72,997.94,246.66,624.06,992.427,583.3
Africa580.5635.3336.6861.71,262.61,472.91,999.97,149.5
Asia882.0603.8435.41,011.51,197.43,448.33,163.510,741.9
Europe611.5340.1271.6249.0765.8981.21,326.04,545.2
Middle East133.6199.5143.1289.7152.475.70.8994.8
Western Hemisphere682.3832.135.0586.0868.4646.0502.24,152.0
All countries5,281.24,808.92,660.55,960.97,233.59,548.46,992.442,485.6
Memorandum
Stand-by and extended
arrangements as of
April 30
Commitments1,472.25,197.65,759.31,600.43,049.79,475.116,206.338,286.4
Undrawn balances1,085.83,581.13,638.81,377.52,718.08,076.411,154.6
As per cent of
commitments73.868.963.286.189.185.268.8
Gold distribution3209.7212.6220.4230.8873.5
Profits from gold sales
distributed to
developing countries4222.670.6302.4400.2995.8

Excluding purchases in the reserve tranche.

Excluding purchases and repurchases in the reserve tranche; net repurchases (—).

Valued at SDR 35 per fine ounce.

Distribution in U.S. dollars. SDR amounts based on SDR/U.S. dollar rate in effect at time of distribution.

Excluding purchases in the reserve tranche.

Excluding purchases and repurchases in the reserve tranche; net repurchases (—).

Valued at SDR 35 per fine ounce.

Distribution in U.S. dollars. SDR amounts based on SDR/U.S. dollar rate in effect at time of distribution.

New commitments of the Fund under stand-by and extended arrangements increased from SDR 10.3 billion in 1980/81 to SDR 11.3 billion in 1981/82. The increase in new commitments occurred in spite of a decrease in the number of stand-by and extended arrangements concluded in this financial year compared with the previous year. Of the total new commitments, about SDR 11 billion was under 19 stand-by arrangements and 5 extended arrangements, including SDR 5 billion in an arrangement with India, the largest commitment in the history of the Fund. Similarly, by the end of the financial year on April 30, 1982, the aggregate commitments under arrangements outstanding had risen to SDR 16.2 billion, also the largest in the Fund’s history. Undrawn balances under the aggregate commitments amounted to about SDR 11.2 billion at the end of 1981/82, or about 68 per cent of commitments. The level of undrawn balances reflects (1) that members’ purchases under arrangements are subject to phasing over the life of the arrangement, which may be up to three years, and (2) arrangements can become “inoperative,” in the sense that the member concerned may be unable to draw for reasons other than phasing of purchases. Thus, drawing rights under a number of upper credit tranche arrangements were inoperative as at the end of April 1982, with undrawn balances under these arrangements amounting to about SDR 4 billion. It should be noted, however, that a member’s inability to request a purchase under an arrangement does not necessarily signify that the adjustment program has failed. Moreover, arrangements can become operative again, in the light of review and renegotiation, while others remain inoperative until they expire, or are canceled and replaced with new arrangements. The proximate cause of “inoperative” arrangements has been largely the nonobservance of performance criteria, the key element in monitoring the performance of an economy under an arrangement. In most cases, stand-by arrangements have become inoperative because domestic credit expansion has exceeded the quantitative ceilings set in the program, in some cases as a result of unforeseen exogenous factors such as substantial changes in import prices, especially in the energy sector. The Fund keeps all these issues under review and is exploring the feasibility of reducing the incidence of program failure through, among other things, its technical assistance programs.

The Fund’s review of upper credit tranche arrangements during the period 1971-80 shows, first, that developing countries with Fund-supported programs generally achieved a significant improvement in their balance of payments, both in absolute terms and in comparison with all non-oil developing countries. Second, the rate of inflation rose less in countries with Fund programs than in non-oil developing countries as a whole.

In keeping with the Fund’s policy of assuring members flexibility of access to its financial facilities in response to their balance of payments needs, the Executive Board reviewed in February 1982 the Fund’s policies with regard to emergency assistance related to natural disasters. It was decided that effective emergency assistance should continue to be provided to members afflicted by natural disasters through a flexible application of existing tranche policies on use of Fund resources.

The Fund has an important role to play in the adjustment and the financing of members’ balance of payments deficits, and its resources must therefore be commensurate with the tasks before it. Since quota subscriptions, as noted in the communiques of the Interim Committee, are the primary source of the Fund’s financial resources, the level of Fund quotas has to be adequate to enable the Fund to perform its functions effectively in the 1980s. The Executive Board has therefore assigned high priority to its work on the Eighth General Review of Quotas, with a view to completing it not later than December 11, 1983 and, if possible, earlier.

Although the overall liquidity position of the Fund, that is, the relationship between the Fund’s stock of usable ordinary resources and its liquid liabilities and overall financing commitments, is at present adequate, the demands on the Fund’s resources are likely to remain high over the next few years. During 1981/82, for the first time, the Fund’s commitments involved a higher proportion of borrowed resources (about SDR 6 billion under the policy of enlarged access) than ordinary resources (SDR 4.5 billion). The Fund may need to continue to supplement its ordinary resources by borrowings in the next few years, as further commitments are made and drawn down under stand-by and extended arrangements, together with purchases made by members under the special facilities. In January 1982, the Executive Board adopted guidelines for borrowing by the Fund that set a maximum range for total outstanding borrowing plus unused credit lines of 50 to 60 per cent of total Fund quotas, with a provision for review by the Executive Board if the ratio exceeded 50 per cent. However, the range of 50 to 60 per cent is not regarded as a target, nor as an indication that borrowing will in fact reach that level. Fund borrowing will be subject to continuous monitoring by the Executive Board, which will also regularly review the Fund’s liquidity and financial position.

In addition to the size of ordinary and borrowed resources, which determines the provision of conditional liquidity by the Fund, the prospects with regard to the flow of unconditional liquidity (SDR allocations) are also pertinent to the Fund’s role in the international monetary system. In recent years, the Fund has taken a number of major decisions to improve the quality of the SDR as a reserve asset in order to further the objective of making it the principal reserve asset of the international monetary system. In his report to the Board of Governors and the Executive Board in June 1981, the Managing Director stated that he was not in a position to make a proposal for SDR allocations in the fourth basic period, beginning January 1, 1982, that would command sufficiently broad support among the participants. Subsequently, at its meeting in September 1981, the Interim Committee urged the Executive Board to continue its deliberations on whether there should be a further allocation of SDRs. In its meeting in May 1982, the Committee noted the statement of the Managing Director that he still did not have sufficient support to be able to make a proposal on allocations. Discussion in the Committee showed that, while a large number of members favored a further allocation, the required support for an allocation was lacking. In its communique, therefore, the Committee asked the Executive Board to keep the matter under consideration and to continue its efforts to bring about a convergence of views that would permit the Managing Director to submit, as soon as possible, a proposal concerning SDR allocations in the fourth basic period, in accordance with the provisions of the Fund’s Articles of Agreement.

During the past year, the activities of the Special Drawing Rights Department increased considerably, with an almost threefold increase in the volume of transactions by agreement, from SDR 418 million in the previous year to SDR 1,242 million. Similarly, the use of SDRs to pay Fund charges and remuneration, as well as other uses, all expanded. During the year under review, three new “other holders” of SDRs were prescribed by the Fund, bringing the total number of such holders to twelve. Also, the use of the SDR as a unit of account in international organizations and conventions and in the financial markets continued to increase further.

In May 1982, the Executive Board comprehensively reviewed the technical assistance programs of the Fund in central banking and fiscal affairs. It reaffirmed that in all matters related to technical assistance the Fund will continue to adopt a flexible and pragmatic approach, taking into account the specific needs of member countries, including the strengthening of their financial infrastructure, their technical capability to implement adjustment programs, and the training of local counterparts. Requests for technical assistance are the prerogative of a member country, and such assistance is not a condition of Fund financial assistance. The Fund’s procedures also provide for close collaboration between its technical assistance departments and area departments. The Fund’s training programs at headquarters continued to be made available to members in the monetary, banking, fiscal, and balance of payments fields.

During 1981/82, consultations were completed for 79 countries under Article IV. These consultations are the principal means of carrying out the Fund’s surveillance over the exchange rate policies of individual member countries and may be combined with the negotiations on use of Fund resources. In addition, special consultations were held with member countries in connection with the World Economic Outlook reviews by the Executive Board.

Membership and Quotas

Membership and Participation in the Special Drawing Rights Department

Between May 1, 1981 and May 31, 1982, five new members joined the Fund and one other country applied for membership. The Republic of Vanuatu and the Kingdom of Bhutan both became members on September 28, 1981, with quotas of SDR 6.9 million and SDR 1.7 million, respectively. On February 25, 1982, Antigua and Barbuda became a member, with a quota of SDR 3.6 million. On March 16, 1982, Belize became a member, with a quota of SDR 7.2 million. The Hungarian People’s Republic became a member on May 6, 1982, with a quota of SDR 375 million, raising the total membership in the Fund to 146 and the total of members’ quotas to SDR 61,059.8 million. All the new members elected to participate in the Special Drawing Rights Department, and, as a result, all Fund members were participants in that Department at the end of the financial year. The Polish People’s Republic applied for membership during the year.

Special Quota Adjustments

The special quota adjustment requested for Saudi Arabia during the previous financial year became effective during the year under review.1 This adjustment was in response to a request from Saudi Arabia for a substantial increase in its quota. The Board of Governors authorized an increase in Saudi Arabia’s quota from SDR 1,040.1 million to SDR 2,100 million. The new quota became effective on September 8,1981, when the full payment of the increase in the quota was received by the Fund.

Eighth General Review of Quotas

Under the Articles of Agreement, the Board of Governors is required to conduct general reviews of Fund quotas at intervals of not more than five years. In accordance with this requirement, the Eighth General Review will have to be completed not later than December 11, 1983. Extensive discussions have taken place in the meetings of the Executive Board on various aspects of the quota review, including a simplification of the existing method of quota calculations. In particular, the Board has considered (i) the quota formulas; (ii) the factors bearing on the size of the Fund in the 1980s; (iii) the factors bearing on general (or equiproportional) and on selective increases in quotas; and (iv) the timetable for the Eighth Review.

With respect to quota formulas and the method of quota calculations, the Executive Board agreed to retain the economic criteria used in the past, with some modifications to broaden the definition of certain economic variables that represent these economic criteria. These modifications include substituting gross domestic product for national income and total reserves averaged over 12 months instead of year-end gold and foreign exchange reserves. There has been some progress toward simplification of the method of quota calculations, with agreement on the reduction of the number of individual formula calculations from ten to five. At the end of June 1982, discussions were continuing on the method of calculation.

The Executive Board also had comprehensive discussions on the appropriate size of the next quota increase. As the Fund normally reviews its quotas quinquennially, and as the next increase is not likely to be effective until 1984/85, the Executive Board considered this matter in the light of economic conditions likely to prevail in the second half of the 1980s, the role of the Fund in such conditions, and the need for increased quota resources to enable the Fund to carry out its tasks. The Executive Board also had an initial discussion on various considerations that have a bearing on the distribution of the overall increase in quotas among members.

Transactions and Operations in the General Resources Account

The most notable feature of activity in the General Resources Account in 1981/82 was the rise in the level of total purchases (excluding those in the reserve tranche) from SDR 4.4 billion in 1980/81 to SDR 7.0 billion, the highest level since 1976. Most purchases were under credit tranches (SDR 2.7 billion) and under the extended Fund facility (SDR 2.6 billion). Outstanding purchases at the end of April 1982 amounted to SDR 14.9 billion, an increase of about SDR 5 billion over the preceding year. (See Chart 23.) Total repurchases during the year (SDR 2.0 billion) were lower than in any of the financial years since 1978; about one half of these repurchases were in respect of drawings made under the oil facility, and a further one third in respect of drawings under the compensatory financing decision.

Chart 23.Use of Fund’s Resources as at April 30, 1971-82

(In billions of SDRs)

Purchases

Reserve Tranche Purchases

Reserve tranche2 purchases, which represent a use of members’ liquid reserves in the Fund, also reflected the overall trend of increased activity in the General Resources Account. During 1981/82, 29 members used all or part of their reserve tranche positions for a total of about SDR 1 billion, compared with SDR 474 million and SDR 222 million in the two previous financial years. The bulk of the purchases in the reserve tranche were used to meet general balance of payments needs; the remaining purchases were used to settle repurchases (SDR 22.97 million) and for payment of charges to the Fund (SDR 2.95 million). The latter two types of use have been made possible by the decision3 taken by the Fund in the previous year to improve the asset characteristics of the reserve tranche position. Under this decision, a member using the credit tranches or the extended Fund facility has the option of either retaining or using the reserve tranche position. While a number of members using Fund resources have drawn upon their reserve tranche positions, 26 members with outstanding use under arrangements retained their reserve tranche positions totaling over SDR 450 million.

During the year, the Executive Board amended the decision relating to the reserve tranche position.4 Under the amendment, members indebted to the Fund, and whose currencies are sold by the Fund under operational budgets, or whose currencies are used in operational payments (e.g., in payment of remuneration on reserve tranche positions), have the option of attributing the reduction in the Fund’s holdings of their currencies either to reduce any of their repurchase obligations or to enlarge correspondingly their reserve tranche positions. An attribution may not, however, be made to repurchase obligations financed with borrowed resources unless the Fund is obligated or entitled immediately to repay the lender on the occasion of such attribution. Second, where a member has an outstanding purchase financed under the General Arrangements to Borrow (GAB), it is not free to enlarge its reserve tranche position, because the Fund is obliged, upon attribution, to repay under the GAB, and the participants in the GAB were not on notice that a change in the attribution practices might be made. These amendments extend further the Fund’s policy of making it easier to retain a reserve tranche position while using the Fund’s resources. The widening of the options will further enhance the standing of the reserve tranche as a reserve asset, while protecting the liquidity position of the Fund. These decisions on the reserve tranche position will be reviewed by the Executive Board before April 30, 1984.

Credit Tranche Purchases and Stand-By Arrangements

The pattern of credit tranche purchases and stand-by arrangements was broadly similar in magnitude and composition to that of the previous year. (See Table 21.) Purchases, at SDR 2.7 billion, were only marginally in excess of the previous year and were almost entirely under stand-by arrangements, the largest purchasers being Yugoslavia (SDR 517 million), Turkey (SDR 500 million), Korea (SDR 432 million), and Thailand (SDR 345 million). (See Appendix I, Table 1.2.) Twenty-four other members used the Fund’s resources for a total of SDR 954 million. Most of the purchases in the credit tranches were in respect of high-condition-ality drawings (SDR 2,707.7 million out of a total SDR 2,747.7 million), which were even larger than in the previous year (SDR 1,905.6 million out of a total of SDR 2,682.2 million). As in 1980/81, slightly more than one half of the financing under the stand-by arrangements was made through borrowed resources available under the supplementary financing facility; the use of borrowed resources that became available under the enlarged access policy after March 11, 1981 amounted to SDR 380 million. The use of ordinary resources under stand-by arrangements in 1981/82 was SDR 847 million.

Table 21.Flow of Transactions in the General Resources Account and Resulting Stocks, Financial Years Ended April 30, 1976-82(In millions of SDRs)
Type of TransactionFinancial Year Ended April 30
1976197719781979198019811982
Total purchases6,5914,9102,5033,7202,4334,8608,041
Reserve tranche1,3241611362,4802224741,080
Credit tranches4612,3701,9374851,1062,6822,748
Buffer stock54826
Compensatory financing8281,753 13224658637841,635
Extended facility81901092422169202,578
Oil facility3,966437
Total repurchases9608684,4854,8593,7762,8532,010
Gold sales411452453419
Replenishment up to May 31, 1978201239
Competitive bids181187
Noncompetitive bids511
In distributions210213220231
Outstanding borrowings
In connection with oil facility6,4656,7026,3294,2572,4741,528526
Under General Arangements to Borrow9111,576111111111111
From Swiss National Bank89154
Supplementary financing facility5022,0184,112
Under policy on enlarged access1,358
Holdings of General Resources Account at end of year
Usable currencies27,8005,30011,2008,80010,60023,44017,434
SDRs4617711,3711,2901,4075,4455,456
Gold35,3704,9594,5074,0553,6363,6203,620

In addition, credit tranche purchases equivalent to SDR 39.56 million in the financial year ended April 30, 1976 were reclassified as having been made under the compensatory financing decision.

“Usable currencies” are those that are available to the Fund for net sales through the operational budget, except for those currencies held by the Fund in excess of quota. Since the Second Amendment became effective on April 1, 1978, the criterion for including currencies for net sales is that the members concerned have a balance of payments and reserve position that the Fund considers “sufficiently strong” for that purpose.

Valued at SDR 35 per fine ounce.

In addition, credit tranche purchases equivalent to SDR 39.56 million in the financial year ended April 30, 1976 were reclassified as having been made under the compensatory financing decision.

“Usable currencies” are those that are available to the Fund for net sales through the operational budget, except for those currencies held by the Fund in excess of quota. Since the Second Amendment became effective on April 1, 1978, the criterion for including currencies for net sales is that the members concerned have a balance of payments and reserve position that the Fund considers “sufficiently strong” for that purpose.

Valued at SDR 35 per fine ounce.

During the year, stand-by arrangements were approved for 19 members for a total of SDR 3.1 billion, compared with SDR 5.2 billion in 1980/81. The largest amounts involved arrangements with Romania (SDR 1.1 billion) for a period of three years and with Thailand (SDR 0.8 billion) for two years. All other arrangements were mostly for periods ranging from 10 months to 13 months, in amounts from SDR 1.6 million (Solomon Islands) to SDR 281 million (Morocco). Except for the first credit tranche arrangements with Guatemala and Uruguay, all the others were in the upper credit tranches, most involving borrowed resources. Five arrangements (with Kenya, Liberia, Mauritania, Senegal, and Sudan) involved the commitment of SDR 295 million of borrowed resources under the supplementary financing facility, while ten arrangements (with Ethiopia, The Gambia, Liberia, Madagascar, Mauritius, Morocco, Romania, Somalia, Thailand, and Uganda) provided for borrowed resources (SDR 1.7 billion) under the enlarged access policy. The commitment of ordinary resources for all the arrangements amounted to SDR 1.2 billion.

On April 30, 1982, stand-by arrangements involving undrawn balances of SDR 1.7 billion were inoperative. While some of them are expected to become operative in the coming months, others are likely to be replaced by new arrangements or canceled. Three arrangements—with Kenya, Liberia, and Mauritania—were canceled during the year and replaced by new arrangements.

Extended Fund Facility

In January 1981, the Executive Board, in its latest review of the decision on the extended Fund facility,5 found that the assistance under the facility could play an increasingly important role in view of the growing external pressure being faced by many member countries, and agreed that this assistance should be continued. It was decided that the provisions of the facility would be reviewed not later than June 1982, together with a review of the Fund’s policy on stand-by arrangements.

Five new arrangements were approved during 1981/82 under the extended Fund facility, involving a total commitment of SDR 7.9 billion, of which SDR 4.1 billion was to be financed through borrowed resources under the enlarged access policy, SDR 0.5 billion through borrowed resources under the supplementary financing facility, and SDR 3.3 billion from the Fund’s ordinary resources. In addition, three arrangements—with Guyana, Jamaica, and Sierra Leone—approved in the previous year were augmented for a total of SDR 314 million to meet additional balance of payments needs of these countries. The largest arrangement was with India (SDR 5 billion), followed by Pakistan (SDR 0.9 billion), Zaire (SDR 0.9 billion), and Zambia (SDR 0.8 billion). All the arrangements were for three years, except that with Pakistan, which was for two years. During the year, arrangements with Morocco, Senegal, Sierra Leone, and Sudan were canceled, but those with Morocco, Senegal, and Sudan were replaced by stand-by arrangements of shorter duration.

Purchases under extended arrangements during 1981/82 almost tripled to SDR 2.6 billion, from SDR 920 million in the previous year. Of the 15 members making purchases, 5 members—India (SDR 900 million), Pakistan (SDR 465 million), Zambia (SDR 300 million), Zaire (SDR 175 million), and Jamaica (SDR 171 million)—accounted for more than three fourths of total extended Fund facility purchases. About half of the purchases were financed by the Fund’s ordinary resources, while the other half were about evenly financed through borrowed resources under the supplementary financing facility and the enlarged access policy. As of April 30, 1982, total undrawn balances under the extended Fund facility amounted to SDR 7.5 billion.

Compensatory Financing Facility

Use of the compensatory financing facility has continued to grow significantly, both in absolute terms and also as a share of total Fund credit, since the major liberalizations of the facility in December 1975 and August 1979.6 Purchases in 1981/82 (SDR 1,635 million) amounted to nearly double those in each of the previous two years, and as of April 30, 1982, outstanding purchases amounted to SDR 3.6 billion, which was about one fourth of total purchases outstanding of SDR 14.9 billion.

The Fund’s policy on compensatory financing, notably the meaning of a shortfall attributable to circumstances beyond the control of the member and the experience with the requirement of cooperation, was reviewed by the Executive Board in April 1982. The review did not suggest any need for modifications in existing procedures and practices. It was emphasized that, in deciding whether a shortfall was attributable to circumstances beyond the control of the member, a judgment regarding the factors responsible for the shortfall must take into consideration all the information relevant to each individual case. The Executive Board decided that the existing procedures employed in arriving at these judgments should continue to be applied in a flexible way. There is a standard requirement for all compensatory financing purchases that the Fund be satisfied that the member will cooperate with the Fund in finding, where required, appropriate solutions for the member’s balance of payments difficulties. In addition, purchases that bring a country’s outstanding drawings under the facility to more than 50 per cent of its quota require, inter alia, that the Fund be satisfied that the member has been so cooperating. It was noted that, in the vast majority of cases, the formulation of a judgment on the degree of cooperation has been relatively straightforward and that a case-by-case approach has provided flexibility while ensuring uniformity of treatment of members. In the majority of cases, cooperation was shown by the existence of financial arrangements with the Fund, either in effect or approved simultaneously with the requests for compensatory financing.

Compensatory Financing of Fluctuations in the Cost of Cereal Imports

Executive Board Decision No. 6860-(81/81), adopted May 13, 19817 provides for compensation to be made available to members for excesses in the cost of cereal imports. Under the decision, which will be of particular benefit to low-income countries, such compensation is integrated with that available for export shortfalls. Members experiencing temporary increases in the cost of their cereal imports may request a purchase, subject to quota limits on outstanding purchases in respect of export shortfalls (100 per cent) and in respect of cereal import excesses (100 per cent) and a joint limit of 125 per cent. During 1980/81, three members—Korea, Malawi, and Morocco—used this facility for SDR 106 million, SDR 12 million, and SDR 236 million, respectively. As of April 30, 1982, purchases outstanding amounted to SDR 344 million.

This facility is operative for an initial period of four years and will be reviewed by the Executive Board not later than June 30, 1983, and when quota increases under the Eighth General Review of Quotas become effective.

Buffer Stock Facility

Fund assistance is available to members in balance of payments need for the purpose of financing their contributions to buffer stocks of primary products established under international commodity agreements that are judged to be suitable for Fund financing. In accordance with criteria laid down in the decision establishing the facility, the Fund has so far authorized the use of its resources in connection with the tin, cocoa, and sugar buffer stocks, but purchases have been made only with respect to tin and sugar. Six members have purchased a total of SDR 30 million in connection with their contributions to the buffer stock established under the Fourth International Tin Agreement, and six members have utilized SDR 74 million for contributions under the International Sugar Agreement. All of these purchases have been repurchased. In June 1982, Bolivia and Malaysia made purchases totaling about SDR 83 million in connection with their compulsory contributions to the buffer stock of the Fifth International Tin Agreement.

Supplementary Financing Facility

The supplementary financing facility,8 for which financing was provided by 14 lenders for a total of SDR 7.8 billion, enabled the Fund to provide supplementary financing under stand-by and extended arrangements, in conjunction with the use of the Fund’s ordinary resources. (See Table 22.)

Table 22.Supplementary Financing Facility: Commitments Outstanding and Purchases Under Stand-By and Extended Fund Facility Arrangements, April 30, 1982(In millions of SDRs)
ArrangementSupplementary Financing
CommitmentPurchases1Undrawn balance
CountryQuotaTypeAmount
Bangladesh2228.0EFF800.00480.80110.00370.80
Costa Rica361.5EFF276.5024.5811.2513.33
Dominica42.9EFF8.554.491.782.71
Guyana537.5EFF150.0066.3722.2444.13
Ivory Coast6114.0EFF484.50324.9088.36236.54
Jamaica7111.0EFF477.70149.25128.5520.70
Kenya8103.5SBA151.5096.8428.3668.48
Liberia955.5SBA55.0018.0017.99
Madagascar1051.0SBA109.0029.7117.0912.62
Pakistan11427.5EFF919.00490.12167.56322.56
Senegal1263.0SBA63.0033.577.7925.78
Sudan13132.0SBA198.00136.4043.5992.81
Tanzania1482.5SBA179.60137.4716.28121.19
Togo1528.5SBA47.5029.877.2522.62
Turkey16300.0SBA1,250.001,211.40821.40390.00
Yugoslavia17415.5SBA1,662.001,357.84388.34969.50
Total6,831.854,591.611,877.832,713.78

The amounts represent purchases made under those arrangements that were in effect as of April 30, 1982.

Three-year extended Fund facility (EFF) arrangement approved December 8, 1980.

Three-year EFF arrangement approved June 17, 1981.

Three-year EFF arrangement approved February 6, 1981.

Three-year EFF arrangement approved July 25, 1980.

Three-year EFF arrangement approved February 27, 1981.

Three-year EFF arrangement approved April 13, 1981.

One-year stand-by arrangement (SBA) approved January 8, 1982.

SBA approved for the period August 26, 1981 to September 15, 1982.

SBA approved for the period April 13, 1981 to June 26, 1982.

EFF arrangement approved for the period December 2, 1981 to November 23, 1983.

One-year SBA approved September 11, 1981.

One-year SBA approved February 22, 1982.

SBA approved for the period September 15, 1980 to June 30, 1982.

Two-year SBA approved February 13, 1981.

Three-year SBA approved June 18, 1980.

SBA approved for the period January 30, 1981 to December 31, 1983.

The amounts represent purchases made under those arrangements that were in effect as of April 30, 1982.

Three-year extended Fund facility (EFF) arrangement approved December 8, 1980.

Three-year EFF arrangement approved June 17, 1981.

Three-year EFF arrangement approved February 6, 1981.

Three-year EFF arrangement approved July 25, 1980.

Three-year EFF arrangement approved February 27, 1981.

Three-year EFF arrangement approved April 13, 1981.

One-year stand-by arrangement (SBA) approved January 8, 1982.

SBA approved for the period August 26, 1981 to September 15, 1982.

SBA approved for the period April 13, 1981 to June 26, 1982.

EFF arrangement approved for the period December 2, 1981 to November 23, 1983.

One-year SBA approved September 11, 1981.

One-year SBA approved February 22, 1982.

SBA approved for the period September 15, 1980 to June 30, 1982.

Two-year SBA approved February 13, 1981.

Three-year SBA approved June 18, 1980.

SBA approved for the period January 30, 1981 to December 31, 1983.

The borrowed resources available under the facility were fully committed by March 30, 1981, except that resources may become available again in the event of the cancellation of an arrangement involving supplementary financing. From March 30, 1981, commitments of borrowed resources were in principle to be made from borrowing by the Fund under the policy on enlarged access (see below). The policy on enlarged access did leave open the scope for supplementary financing to be committed in new arrangements with enlarged access in the event that previously committed supplementary financing became available. In accordance with the loan agreements, supplementary financing facility funds could not be committed after February 22, 1982. The Fund decided that, in the period up to that date, supplementary financing released under a canceled arrangement by a member would be recommitted if another arrangement that replaced the canceled arrangement was entered into by the same member.9 Supplementary financing was recommitted in this way during the period to February 22, 1982 for a total of SDR 988 million for new arrangements with Costa Rica, Jamaica, Kenya, Liberia, Madagascar, Mauritania, Pakistan, Senegal, and Sudan.

A total of SDR 4.2 billion of the SDR 7.8 billion under the supplementary financing facility borrowing agreements was disbursed by April 30, 1982. Under the borrowing agreements, the Fund cannot borrow and disburse supplementary financing facility funds after February 22, 1984. The Executive Board has authorized the Managing Director to substitute, prior to February 22, 1984, supplementary financing for borrowed resources for enlarged access when he considers supplementary financing has become available. Such financing may become available as “inoperative” arrangements are canceled or arrangements expire without being fully drawn, thereby releasing supplementary financing facility funds that are in excess of supplementary financing facility lines of credit that cannot be drawn upon because of the lender’s balance of payments need. (Two of the lenders requested advance repayment of their supplementary financing facility claims on the Fund, for a total of SDR 78 million, because of balance of payments need. These claims on the Fund were encashed and refinanced by calls on other supplementary financing facility lenders by agreement with those lenders.) In such circumstances, the supplementary financing facility funds available could not be recommitted after February 22, 1982 but could be disbursed over the next two years in substitution of other borrowed resources under stand-by and extended arrangements that had been approved before February 22, 1982. This procedure maximizes the use of the supplementary financing facility borrowing agreements while reducing the need to borrow under the policy on enlarged access. Concurrently, it enlarges the likelihood of use of supplementary financing resources by low-income developing members eligible for subsidy.10 A total of 12 members agreed to the amendment of their arrangements to provide for such substitution. Possible substitution of resources will be considered in connection with each quarterly operational budget. As of April 30, 1982, no such substitution had been made. Available supplementary financing will be called upon to finance purchases in a coming calendar quarter by those members that had agreed to permit the Fund to substitute supplementary financing facility for enlarged access resources. The cost of using supplementary financing facility resources by low-income developing members is eligible for subsidy.

Policy on Enlarged Access to Fund Resources

In March 1981, the Executive Board took a decision under which it adopted a policy on enlarged access to the Fund’s resources until the Eighth General Review of Quotas becomes effective.11 In accordance with this policy, following the full commitment of resources from the supplementary financing facility and the completion of new borrowing agreements, the Fund has been able to continue its assistance to members facing payments imbalances that are large in relation to their quotas and which need resources in larger amounts and for longer periods than are available under the regular tranches.

Financing for purchases under this policy is being obtained under new borrowing agreements, the first of which was a medium-term agreement for SDR 8 billion concluded with the Saudi Arabian Monetary Agency on May 7, 1981, which was followed by short-term agreements totaling SDR 1.3 billion with the Bank for International Settlements, 18 central banks or official agencies of Fund members, and Switzerland.

Under the enlarged access policy, as under the supplementary financing facility, the Fund authorizes purchases for stand-by and extended arrangements to be financed in specified proportions from ordinary resources and borrowed resources in accordance with existing policies on phasing and performance criteria. Access to the Fund’s resources under other policies continues to be available in accordance with the terms of those policies. The Fund will review the decision on enlarged access to Fund resources not later than June 30, 1983, and annually thereafter as long as it remains in effect. The enlarged access policy has been used extensively by members in its first year. A total of 24 stand-by and extended arrangements were approved for a total of SDR 11.3 billion, of which SDR 6.0 billion was committed from borrowed resources under enlarged access; the major part of the balance is financed from the Fund’s ordinary resources, supplemented by some recommitment of supplementary financing resources. As of April 30, 1982, purchases by 11 members for a total of SDR 1,160 million were financed by calls under the enlarged access borrowing agreements. (See Table 23.) In other cases, purchases did not reach the level at which enlarged access resources were required to be used.

Table 23.Enlarged Access Resources: Commitments and Purchases Under Stand-By and Extended Fund Facility Arrangements, April 30, 1982(In millions of SDRs)
CountryQuotaArrangementEnlarged Access Resources
CommitmentPurchases1Undrawn balance
TypeAmount
Costa Rica261.5EFF276.75166.07166.07
Ethiopia354.0SBA67.5032.5226.126.40
Gambia, The413.5SBA16.908.884.104.78
Guyana537.5EFF150.0050.0050.00
India61,717.5EFF5,000.002,595.50450.002,145.50
Jamaica7111.0EFF477.70241.30241.30
Liberia855.5SBA55.006.920.926.00
Madagascar951.0SBA109.0032.3032.30
Mauritius1040.5SBA30.0013.2813.28
Morocco11225.0SBA281.25166.1843.45122.73
Romania12367.5SBA1,102.50746.1853.22692.96
Somalia1334.5SBA43.1322.6419.113.53
Thailand14271.5SBA814.50566.59179.46387.13
Uganda1575.0SBA112.5058.9753.525.45
Zaïre16228.0EFF912.00632.94107.60525.34
Zambia17211.5EFF800.00674.00223.00451.00
10,248.736,014.271,160.504,853.77

The amounts represent purchases made under those arrangements that were in effect as of April 30, 1982.

Three-year extended Fund facility (EFF) arrangement approved June 17, 1981.

Stand-by arrangement (SBA) approved for the period May 8, 1981 to June 30, 1982.

One-year SBA approved February 22, 1982.

Three-year EFF arrangement approved July 25, 1980.

Three-year EFF arrangement approved November 9, 1981.

Three-year EFF arrangement approved April 13, 1981.

SBA approved for the period August 26, 1981 to September 15, 1982.

SBA approved for the period April 13, 1981 to June 26, 1982.

One-year SBA approved December 21, 1981.

One-year SBA approved April 26, 1982.

Three-year SBA approved June 15, 1981.

One-year SBA approved July 15, 1981.

SBA approved for the period June 3, 1981 to March 31, 1983.

SBA approved for the period June 5, 1981 to June 30, 1982.

Three-year EFF arrangement approved June 22, 1981.

Three-year EFF arrangement approved May 8, 1981.

The amounts represent purchases made under those arrangements that were in effect as of April 30, 1982.

Three-year extended Fund facility (EFF) arrangement approved June 17, 1981.

Stand-by arrangement (SBA) approved for the period May 8, 1981 to June 30, 1982.

One-year SBA approved February 22, 1982.

Three-year EFF arrangement approved July 25, 1980.

Three-year EFF arrangement approved November 9, 1981.

Three-year EFF arrangement approved April 13, 1981.

SBA approved for the period August 26, 1981 to September 15, 1982.

SBA approved for the period April 13, 1981 to June 26, 1982.

One-year SBA approved December 21, 1981.

One-year SBA approved April 26, 1982.

Three-year SBA approved June 15, 1981.

One-year SBA approved July 15, 1981.

SBA approved for the period June 3, 1981 to March 31, 1983.

SBA approved for the period June 5, 1981 to June 30, 1982.

Three-year EFF arrangement approved June 22, 1981.

Three-year EFF arrangement approved May 8, 1981.

The Executive Board has affirmed, in reviewing the Fund’s liquidity position, the guidelines of access to Fund resources under enlarged access. These guidelines provide for members making strong adjustment efforts to have access to Fund resources of up to 150 per cent of quota a year or up to 450 per cent over a three-year period. Members’ cumulative access to the Fund’s conditional liquidity, net of scheduled repurchases, could be up to 600 per cent of quota, excluding outstanding drawings under the compensatory and buffer stock financing facilities or outstanding drawings under the oil facility. The guidelines governing access allow for flexibility in application. Thus, members will in appropriate circumstances be able to purchase larger amounts than the normal limits as, for instance, when a member’s quota is unusually low in relation to its economic size, or when a member undertakes an exceptionally strong adjustment program.

Repurchases

During the past financial year repurchases totaled SDR 2,010 million, compared with the total of SDR 2,853 million in 1980/81. Of these, about one half were in respect of purchases under the oil facility for 1974 and 1975, followed by repurchases under the compensatory financing facility (30 per cent), and in the credit tranches (about 13 per cent). Other repurchases included mainly SDR 113 million by 46 members under Schedule B, paragraph 4(ii) of the Articles of Agreement;12 and the equivalent of SDR 30.0 million was repurchased by two members, Papua New Guinea (SDR 4.8 million) and Yugoslavia (SDR 25.2 million), in discharge of obligations incurred under Article V, Section 1(b) in effect before the Second Amendment. Three members, Jamaica, Malawi, and Sudan, repurchased a total of SDR 40.8 million, being the amount by which purchases under the compensatory financing facility, based on partly estimated data, exceeded the actual shortfall.

No outstanding purchases were covered by the guidelines for early repurchases.13 However, two members, the United Kingdom (SDR 43.8 million) and Mauritius (SDR 5.5 million), made repurchases in advance of scheduled repurchase commitments. The advance repurchase by the United Kingdom was of assistance to the Fund’s liquidity in connection with the encashment of oil facility loan claims by a lender in balance of payments need.

Fund Liquidity

The Executive Board decided in January 1982, in adopting the guidelines for borrowing, that the Executive Board will regularly review the Fund’s liquidity,14 taking into account all relevant quantitative and qualitative factors, particularly the need to foster and maintain the confidence of creditors to the Fund in its policies and the discharge of its responsibilities in financing and adjustment. The first such comprehensive review of the Fund’s liquidity position was completed in April 1982.

At the end of the financial year 1981/82, the Fund’s usable ordinary resources amounted to about SDR 22.9 billion15 (SDR 17.4 billion of usable currencies and SDR holdings of 5.5 billion in the General Resources Account), compared with outstanding borrowing (under the oil facility, the supplementary financing facility, the General Arrangements to Borrow, and the policy on enlarged access) of SDR 6.8 billion, reserve tranche positions of Fund members (SDR 15.6 billion), and undrawn balances of ordinary resources under stand-by and extended arrangements (SDR 3.6 billion). The reserve tranche positions and loan claims on the Fund may be drawn on or encashed by the creditor members in case of balance of payments need. Therefore, the Fund must continually be able to meet possible demands for encashment of these claims in order to safeguard the reserve character of these assets and thus to maintain the confidence of members and creditors in the Fund as an international monetary institution in which members can hold some of their liquid foreign reserves.

The Fund’s usable currencies are currencies of those members whose balance of payments and gross reserve positions are considered by the Executive Board to be sufficiently strong for their currencies to be sold by the Fund to finance other members’ drawings. Under existing policies and decisions of the Fund, currencies of members that have outstanding purchases are not proposed for sales, unless so agreed with a debtor member that is considered by the Fund to be in a strong external position. The bulk of the Fund’s usable currency holdings usually tends to be represented by a small number of currencies, and this was particularly pronounced as of April 30, 1982 because a large number of currencies were not considered usable in view of the weakening in the external positions of those members. In fact, at the end of the financial year, the Fund’s holdings of five currencies accounted for about 80 per cent of total holdings of usable currencies.

Borrowing

The Fund resorts to borrowing when its liquidity position is considered insufficient to finance its commitments. The Fund has supplemented its ordinary resources (i.e., quotas) by borrowing from some of its members, Switzerland, and central banks and other official institutions in these countries under several arrangements and agreements. The General Arrangements to Borrow were concluded in 1962; the oil facility agreements were entered into in 1974 and 1975, with drawings terminating in 1976; and the supplementary financing facility took effect in 1979, with borrowings to terminate in 1984. To finance its growing commitments under the policy on enlarged access, the Fund entered into bilateral borrowing agreements with the Saudi Arabian Monetary Agency and with the central banks and official agencies of certain industrial and developing countries. (See Table 24.)

Table 24.Borrowing in Connection with Purchases Under Policy on Enlarged Access to Fund’s Resources, May 1, 1981-April 30, 1982(In millions of SDRs)
TypeTotal Amounts of Borrowing AgreementsAmounts BorrowedBalance Available as of April 30, 1982
Medium Term
Saudi Arabian
Monetary Agency8,000.0011,248.006,752.00
Short Term1,305.00109.691,195.31
9,305.001,357.697,947.31

Under the borrowing agreement, the Saudi Arabian Monetary Agency has committed to lend up to SDR 4 billion in the first year, rising to SDR 8 billion in May 1982.

Under the borrowing agreement, the Saudi Arabian Monetary Agency has committed to lend up to SDR 4 billion in the first year, rising to SDR 8 billion in May 1982.

Guidelines for borrowing by the Fund were adopted at the beginning of 1982.16 The Executive Board confirmed that quota subscriptions remained the basic source of the Fund’s financing, but recognized that borrowing has provided an important temporary supplement to Fund resources. The guidelines themselves are subject to review when the Eighth General Review of Quotas is completed, or in the event of major developments in the world economy.

As of April 30, 1982, total outstanding borrowing and unused lines of credit, as defined under the guidelines, amounted to 34.3 per cent of total Fund quotas. The average rates of interest per annum on outstanding Fund borrowings for the year ended April 30, 1982 were 4 per cent (General Arrangements to Borrow); 7.21 per cent (oil facility); 14.58 per cent (supplementary financing facility); and 13.01 per cent (enlarged access to resources).

General Arrangements to Borrow

The General Arrangements to Borrow (GAB), originally concluded between the Fund and ten industrial member countries in 1962 for four years, have been extended a number of times, and most recently for another period of five years from October 24, 1980. Switzerland’s association with the GAB, under separate agreement with the Fund dated June 11, 1964, has been extended until July 15, 1985, with an automatic extension until October 23, 1985 provided that the Swiss Parliament decides to extend the relevant Federal Decree until the latter date. The maximum credit available to the Fund through the GAB in lenders’ currencies as of April 30, 1982 was equivalent to about SDR 6.4 billion, of which the balance after adjusting for GAB resources already drawn upon, was about SDR 5.7 billion. The use of the GAB is limited to drawings by a participant in the GAB, and it is activated only to forestall or cope with an impairment of the international monetary system. The last use of the GAB was in connection with a reserve tranche purchase, equivalent to SDR 777 million, made in November 1978 by the United States; this amount is scheduled to be repaid by the Fund not later than in November 1983.

Oil Facility

The borrowing agreements under the oil facility were originally entered into by the Fund with 17 lender countries, including Switzerland, in 1974 and 1975 for a total amount of SDR 6.9 billion. By April 30, 1982, the Fund had repaid most of the indebtedness incurred under the oil facility, with a balance outstanding amounting to SDR 0.5 billion. (See Appendix I, Table I.9.)

In April 1982, Nigeria encashed its claims on the Fund. A total of SDR 45.0 million borrowed under the oil facility was repaid to Nigeria, of which a major part was financed through an advance repurchase of drawings under the oil facility by the United Kingdom, leaving SDR 1.2 million to be financed through the Fund’s ordinary resources. This encashment—the first under the facility—underscores the liquid character of loan claims on the Fund, as they can be immediately encashed by the lender in case of balance of payments need.

Supplementary Financing Facility

In 1979, the Fund entered into borrowing agreements with 13 members and the Swiss National Bank to be able to borrow the equivalent of SDR 7.8 billion as supplementary financing. (See Appendix I, Table 1.10.)

During the financial year, the Fund borrowed a total of SDR 2.2 billion under the facility, compared with SDR 1.5 billion in the previous year. On April 30, 1982, SDR 3.6 billion was still undrawn but had been almost fully committed under existing stand-by and extended arrangements.

As with the oil facility, a creditor’s claims on the Fund under the supplementary financing facility are en-cashable by the Fund virtually on demand if the creditor represents that it has a balance of payments need. Lenders can, without prior consent of the Fund, transfer their claims to any other lender, any Fund member, or certain other official entities at prices agreed between the transferor and the transferee. The first such transaction took place in November 1980, when loan claims totaling SDR 172 million were transferred by the Deutsche Bundesbank to the Saudi Arabian Monetary Agency. In February 1982, the Banco de Guatemala encashed its claims of SDR 8.4 million, and in April 1982, the Central Bank of Nigeria encashed its claims of SDR 69.9 million. Both encashments were refinanced through calls by agreement with other lenders to the supplementary financing facility. The Banco de Guatemala’s claims were refinanced through a call on the Swiss National Bank, while the Central Bank of Nigeria’s claims were refinanced through calls on Japan and the United States, each for one half of the total amount.

Borrowing to Finance Enlarged Access

Medium-Term Borrowing

The Saudi Arabian Monetary Agency has agreed to lend the Fund up to a maximum of SDR 4 billion in the first year and increasing to SDR 8 billion by the end of the second year of a six-year commitment period.17 The Saudi Arabian authorities have also indicated that it is their intention to consider a further commitment in the third year if their balance of payments and reserve position so permits. In accordance with the agreement, the Fund made drawings of SDR 1.2 billion in the first year; it will not draw more than SDR 4 billion in any one year without the further agreement of the Saudi Arabian Monetary Agency.

Short-Term Borrowing

By April 30, 1982 the Fund had agreed with the central banks or official agencies of 18 countries that they would make available to the Fund the equivalent of SDR 1.3 billion over a commitment period of two years.18 Of this amount, SDR 675 million is available to the Fund under a borrowing agreement with the Bank for International Settlements (BIS),19 and the balance under direct bilateral arrangements with lenders, namely, the National Bank of Belgium, Japan, the Swiss National Bank, the Bank of England, the Reserve Bank of Australia, the Bank of Finland, the Central Bank of Ireland, and the South African Reserve Bank. The Fund may enter into arrangements with other central banks or official agencies of members other than those above on substantially the same terms as the agreement with the BIS.20

Borrowed Resources Suspense Accounts

The Executive Board adopted decisions in May 198121 authorizing the Managing Director to establish borrowed resources suspense accounts to receive amounts borrowed under the policy of enlarged access pending use in purchase transactions or received in repurchases pending repayment to lenders. So far, such accounts have been established with the Bank for International Settlements, the Federal Reserve Bank of New York, and the Saudi Arabian Monetary Agency. The authority was also given for undisbursed balances in the accounts to be temporarily invested in SDR-denominated assets until transfer to a General Resources Account for use in a transaction.22 The use of the accounts during 1981 was confined to the management of undisbursed balances of drawings from the Saudi Arabian Monetary Agency. Amounts were temporarily redeposited with the BIS or the Federal Reserve Bank of New York in SDR-denominated accounts at prevailing short-term SDR interest rates. As of April 30,1982, balances of SDR 230 million were on deposit with the BIS awaiting disbursement.

Charges, Remuneration, and Financial Results

With effect from May 1, 1981, important changes were made in the structure of the Fund’s charges and in the relationship of the SDR rate of interest and the rate of remuneration to the combined market rate of interest.23 The decisions taken by the Fund, based on the review with respect to charges, were to simplify the structure of the Fund’s charges, to provide for periodic reviews of the Fund’s income position, and to introduce a safeguard procedure to give assurance that over time the Fund’s income position would be positive and the Fund would add moderately to its reserves. The simplification of the structure of charges resulted in the introduction of a single rate of charge to apply to members’ use of the Fund’s ordinary resources. This single rate of charge replaced the earlier schedules of charges that had provided for a progression in the rates of charges each year that the holdings subject to charges remained outstanding. Under the new procedures, the Executive Board is to determine the rate of charge at the beginning of each financial year based on the estimated income and expense of the Fund for the year and taking into account a target amount of net income for the year. For the financial year 1982, the rate of charge to be applied to holdings arising from purchases financed from the Fund’s ordinary resources was set by the Executive Board at 6.25 per cent per annum and at 6.60 per cent per annum for the financial year 1983.

The schedules of charges applicable to holdings arising from purchases by members financed with borrowing under the oil facility, the supplementary financing facility, and the policy on enlarged access were not changed, as they reflect the cost of borrowed funds. The rates of charge applicable to purchases under the oil facility for 1974 and 1975 have progressed to the maximum levels of 7.125 per cent per annum and 7.875 per cent per annum, respectively. The rates of charge applied to the use by members of borrowed resources under the supplementary financing facility and the policy on enlarged access continued to be the same as in the previous year. In the case of the supplementary financing facility, the rate of charge is the rate of interest paid by the Fund plus 0.2 per cent in the first 3½ years and plus 0.325 per cent after 3½ years. Under the enlarged access policy, the rate is the net cost of borrowing by the Fund plus 0.2 per cent per annum.

The Fund pays remuneration to those members who hold a remunerated reserve tranche position. Such a position exists whenever the Fund’s holdings of a member’s currency (after exclusion of currency on which the member is obligated to pay charges to the Fund) are lower than the norm for remuneration. The norm is defined for members of the Fund prior to the Second Amendment (April 1, 1978) as the sum of 75 per cent of quota at the date of the Second Amendment and the increase in quotas after that date. For members that joined the Fund after April 1, 1978, the norm is the weighted average of the norms applicable to all other members on the date the member joined the Fund plus the increase in its quota after that date. At the end of April 1982, the average of the norm for Fund members was 87.91 per cent of quota.

At the time that the structure of the Fund’s charges was simplified and the single rate of charge was introduced, decisions were also taken with respect to the relationship of the SDR interest rate to the combined market rate and of the rate of remuneration to the SDR interest rate. These decisions accorded with the objective of keeping the rate of remuneration as high as possible relative to the SDR rate of interest, while at the same time maintaining a sound income position for the Fund and the concessional rates of charges. In the light of these objectives, the SDR rate of interest was increased, effective May 1, 1981, from 80 per cent to 100 per cent of the combined market rate, and the rate of remuneration, which in accordance with Article V, Section 9 (a) of the Fund’s Articles of Agreement must be between 80 per cent and the full SDR interest rate, was changed from 90 per cent to 85 per cent of the SDR interest rate. Although this latter change reduced the level of the rate of remuneration in relation to the SDR interest rate, the increase in the SDR interest rate raised the rate of remuneration in relation to the combined market rate from 72 per cent (90 per cent of 80 per cent) to 85 per cent.

The SDR rates of interest and the rates of remuneration (Chart 24) applicable over the five quarters beginning April 1, 1981 were as follows:

Chart 24.SDR Interest Rate, Rate of Remuneration, and Short-Term Interest Rates, July 1974-June 19821

(In per cent per annum)

1Up to December 1980, short-term domestic interest rates are the yield on three-month treasury bills for the United Kingdom and the United States, the rate on three-month interbank deposits for France and the Federal Republic of Germany, and the call money market rate (unconditional) for Japan. From January 1981, the yield on U.S. Treasury bills was converted to a coupon equivalent basis, and the discount rate on two-month (private) bills was used for Japan. From March 1981, the basis for the interbank rates for France and the Federal Republic of Germany was converted from a 360-day year to a 365-day year.

Calendar quarter beginningSDR interest rateRate of remuneration
April 1, 1981-April 30, 198110.1259.1125
May 1, 1981-June30, 198112.5810.69
July 1, 198114.0311.93
October 1, 198113.9911.89
January 1,198211.639.89
April 1, 198212.1510.33

The Rules and Regulations of the Fund provide for a review of the rate of interest on holdings of special drawing rights and of the rate of remuneration at the conclusion of each financial year. The Rules and Regulations also provide that if the net income for the year is in excess of the target amount for the year, the Executive Board will consider whether the whole or a part of the excess should be used to reduce the rate of charge, or increase the rate of remuneration to not more than the rate of interest on the SDR, retroactively for the year just ended, or both, or to place all or part of the excess to reserve.

Income, Expense, and Reserves

For the financial year ended April 30, 1982, the Fund’s net income amounted to SDR 92 million, compared with SDR 80 million in 1980/81. The results reflect a substantial increase in operational income from periodic charges, service charges, and interest on the Fund’s SDR holdings. Total operational income for 1981/82 amounted to a record SDR 1,789 million and represented an increase of SDR 907 million over the previous year.

At the same time, the Fund’s operational expense also increased to a record level of SDR 1,544 million, an increase of SDR 842 million over the previous year. Operational expense of the Fund comprises remuneration payable by the Fund on the use of creditor currencies and interest expense on borrowing. Net operational income for the financial year ended April 30, 1982 amounted to SDR 245 million, compared with SDR 180 million in 1980/81. Administrative and fixed property expense rose from SDR 100 million in 1980/81 to SDR 153 million in 1981/82.

The increases in operational income and expense to record levels in 1981/82 reflected the continued assistance provided by the Fund to its members. The total of holdings subject to charges increased from SDR 9,544 million on April 30, 1981 to SDR 14,801 million on April 30, 1982. Over the same period, creditor positions on which the Fund pays remuneration increased from SDR 6,813 million to SDR 9,626 million, and outstanding borrowing by the Fund increased from SDR 4,323 million to SDR 6,773 million. Except for borrowing of SDR 1,303 million outstanding under the General Arrangements to Borrow and under the oil facility, the interest paid by the Fund must reflect current market interest rates.

A comparative statement of the Fund’s operational income and expense is shown in Appendix VII and comparative details of administrative and fixed property expense are shown in Appendix VI.

The Articles of Agreement and the Rules and Regulations of the Fund provide that the Fund shall determine at the end of each year the disposition to be made of the net income for the year. The Executive Board determined that the net income for the financial year ended April 30, 1982 shall be placed to special reserve. Total reserves of the Fund, taking into account net income for 1981/82, amounted to SDR 935 million.

Special Drawing Rights Department

The total transfers in the Special Drawing Rights Department during 1981/82 (SDR 8.6 billion) were below the record of SDR 11.9 billion in the previous year, which had reflected mainly the massive use of SDRs to make payments for the quota increases under the Seventh General Review in 1980. There was, nevertheless, a considerable increase in the volume of transactions by agreement, from SDR 418 million to SDR 1,242 million, while the volume of transactions with designation (SDR 1,875 million) was almost at the same level as in the previous year (SDR 1,882 million). In July 1981 first use was made under the Executive Board’s decisions prescribing the additional uses of SDRs in various financial operations by agreement among participants and other holders.

Other Holders of SDRs

The Fund prescribed three more institutions as “other holders” of SDRs during the year ended April 30, 1982, bringing the total number of other holders to twelve. The three new holders are the Bank of Central African States, Yaounde; the Central Bank of West African States, Dakar; and the Islamic Development Bank, Jeddah. The twelve “other holders” comprise four central banks and currency authorities (the Swiss National Bank, Zurich; the Bank of Central African States, Yaounde; the Central Bank of West African States, Dakar; and the East Caribbean Currency Authority, St. Kitts); three intergovernmental monetary institutions (the Bank for International Settlements, Basle; the Andean Reserve Fund, Bogota; and the Arab Monetary Fund, Abu Dhabi); and five development institutions (the International Bank for Reconstruction and Development, Washington, D.C.; the International Development Association, Washington, D.C.; the Islamic Development Bank, Jeddah; the Nordic Investment Bank, Helsinki; and the International Fund for Agricultural Development, Rome). “Other holders” can acquire and use SDRs in transactions and operations by agreement with participants and other holders under the same terms and conditions as participants. They cannot, however, receive allocations of SDRs nor use SDRs in transactions with designation. During the year, transfers involving other holders amounted to SDR 67.7 million, although their holdings as at the end of April 1982 remained small (SDR 4.3 million held by four other holders).

Transactions and Operations in SDRs Among Participants and Other Holders

Transactions and Operations by Agreement

The amount of SDRs transferred by participants and other holders in transactions by agreement amounted to SDR 1,242 million in the year ended April 30, 1982, a substantial increase over the previous year’s figure of SDR 418 million. (See Table 25.) This increase in transactions by agreement reflected, in part, the efforts by the Fund to promote a more smoothly functioning market in SDRs, primarily through extension of the list of participants and other holders who are ready to sell SDRs, either under standing arrangements or, on an ad hoc basis, in transactions arranged by the Fund on their behalf. The sales of SDRs by Gabon to other member countries of the Bank of Central African States marked the first transfers of SDRs against CFA francs. The first sales of SDRs by other holders took place in 1981, and the sale by the Swiss National Bank involved the first transfer of SDRs against Swiss francs. Additionally, a new member acquired the SDRs necessary to pay the SDR component of its initial subscription to the Fund from an other holder. This transaction was the first acquisition of SDRs involving SDR-denominated deposits with a private bank. As in past years, however, the main suppliers of SDRs were Canada and the Federal Republic of Germany. Almost all acquisitions of SDRs were to enable the buyer to meet obligations to the Fund, such as charges in the General Resources Account, net charges on the use of SDRs, and repurchases.

Other Uses of SDRs

The Fund permits additional uses of SDRs by participants and by other holders, namely, to buy and sell SDRs forward; to borrow, lend, or pledge SDRs; to use SDRs in swaps; or to make donations (grants) with SDRs.24 The year 1981/82 saw the first such additional uses of SDRs in loans, a use which had been authorized by the Executive Board in December 1978. These loans, both of which involved other holders, totaled SDR 24.3 million. In the first case, an other holder borrowed SDRs from a central bank and in the second, an other holder lent SDRs to one of its members. The borrower in the second loan operation also used SDRs to settle certain obligations toward the other holder, in amounts totaling SDR 7.6 million. One obligation was a payment of a capital subscription by the member to the other holder; two others were debt service payments. In addition, a transfer of SDRs took place between two central banks, participating in the European Monetary System, in settlement of a financing operation denominated in ECUs falling due under the operating procedures of that system. All decisions permitting additional uses of SDRs are reviewed by the Fund once each year.

Table 25.Use and Receipt of SDRs in Transactions by Agreement, Financial Year Ended April 30, 1982(In SDRs)
HolderUseReceipt
Arab Monetary Fund1,035,000
Australia10,780,000
Austria61,850,000
Bangladesh13,800,000
Bolivia9,501,190
Burma5,000,000
Cameroon3,300,000
Canada318,281,972
Central African Republic2,475,000
Chad1,785,274
Chile2,400,000
China, People’s Republic of240,000,000
Congo1,200,000
Costa Rica5,380,000
Cyprus3,425,000
Egypt3,050,000
El Salvador5,266,520
Equatorial Guinea169,950
Finland36,000,000
Gabon5,389,360
Gambia, The313,975
Germany, Federal
Republic of493,910,200
Ghana1,100,000
Greece14,860,632
Grenada300,000
Guatemala3,000,000
Guinea2,000
Guinea-Bissau249,975
Guyana3,740,000
Haiti3,240,000
Iceland10,100,000
Israel68,000,000
Ivory Coast5,500,000
Jamaica25,500,000
Korea102,200,000
Lao People’s Democratic
Republic1,091,498
Liberia7,819,142
Madagascar1,000,000
Malawi7,320,000
Mali2,510,000
Mauritania2,510,000
Mauritius2,960,000
Mexico22,850,000
Morocco37,500,000
Nepal1,710,000
New Zealand31,000,000
Nicaragua4,068,739
Nigeria25,500,000
Nordic Investment Bank21,000,000
Panama17,000,000
Peru63,000,000
Philippines86,750,000
Portugal7,600,000
Romania22,400,000
Senegal7,142,500
Sierra Leone4,030,942
South Africa20,000,000
Spain100,000,000
Sri Lanka13,680,000
Sudan29,993,360
Swaziland3,000,000
Swiss National Bank12,000,000
Tanzania9,000,240
Thailand1,783,691
Turkey118,570,481
Uganda3,315,789
United Kingdom283,071,572
Vanuatu1,035,000
Viet Nam1,100,000
Western Samoa580,000
Yemen, People’s Democratic
Republic of4,500,000
Yugoslavia11,009,375
Zaïre7,739,506
Zambia____________24,828,325
Total1,242,038,1041,242,038,104

Transactions with Designation

In 1981/82, 41 participants used SDR 1,875 million in 70 transactions with designation (in which the user must represent that it has a balance of payments need) to obtain currency from other participants designated by the Fund. (See Table 26.) The volume of transactions was almost the same as in 1980/81 (SDR 1,882 million). The bulk of the users were non-oil developing countries, and only one industrial country and one oil exporting country used SDRs in transactions with designation. Of these transactions, 58 (amounting to SDR 1,386 million), by 38 countries, represented the immediate use of SDRs acquired from the Fund’s General Resources Account in purchase transactions, while the remainder represented the drawdown of participants’ own SDR holdings. For the first time, a participant needing to use SDRs authorized the Fund to attempt to arrange the sale of its SDRs in transactions by agreement with the same value date as the prospective transaction with designation. A total of 29 countries were designated to provide currency, the largest amounts being provided by the United States and the United Kingdom. Of the countries designated, 14 were non-oil developing countries, 9 were oil exporting countries, and 6 were industrial countries.

Table 26.Use and Receipt of SDRs in Transactions with Designation, Financial Year Ended April 30, 1982(In SDRs)
ParticipantUseReceipt
Algeria11,000,000
Australia194,213,639
Austria9,019,545
Bahrain3,400,000
Bangladesh36,000,000
Barbados5,013,287
Brazil7,500,000
Burma3,000,000
Central African Republic3,980,000
Chile56,151,818
Colombia9,500,000
Dominica714,000
Dominican Republic3,000,000
Ecuador1,000,000
El Salvador32,165,000
Ethiopia9,097,649
Gambia, The1,569,545
Germany, Federal
Republic of87,213,639
Grenada240,000
Guatemala78,442,9071,555,000
Guinea-Bissau1,750,000
Honduras19,000,000
Indonesia21,435,000
India200,000,000
Ivory Coast59,087,500
Jamaica24,500,000
Kenya20,000,000
Korea61,733,182
Kuwait7,500,000
Lao People’s Democratic
Republic2,700,000
Liberia11,243,801
Libyan Arab Jamahiriya3,500,000
Madagascar6,554,545
Malawi8,800,000
Malaysia89,750,000
Mauritania2,000,000
Mauritius6,300,000
Mexico242,110,56753,700,000
Morocco18,800,000
Netherlands11,953,704
Nigeria213,467,8762,500,000
Norway11,413,287
Oman1,640,000
Paraguay2,800,000
Qatar724,665
Romania82,000,000
Rwanda900,000
Saudi Arabia91,500,000
Senegal29,163,636
Singapore17,343,801
Solomon Islands1,524,665
South Africa77,226,43113,165,000
Sri Lanka41,500,000
Sudan40,800,000
Suriname700,000
Thailand139,727,273
Trinidad and Tobago5,814,000
Turkey20,000,000
Uganda6,363,636
United Arab Emirates10,400,000
United Kingdom623,700,567
United States798,151,369
Uruguay3,500,000
Venezuela6,000,000
Yemen Arab Republic10,813,506
Zaïre31,935,000
Zambia38,393,750________
Total1,874,681,3951,874,681,395

Transactions and Operations Between Participants and the General Resources Account

Inflows

Inflows to the General Resources Account (other than on account of quota payments) were SDR 2,443 million in 1981/82, against SDR 1,772 million in 1980/81. The majority of these inflows represented payment of charges on the use of Fund resources. During 1981/82 all charges were paid in SDRs. An increasing number of members with low holdings acquired SDRs for this purpose from other participants or from the General Resources Account. SDRs were also received from Saudi Arabia as part of the subscription for a special quota increase and by a new member, Vanuatu, in partial payment of its initial subscription.

Repurchases that were discharged at the member’s option with SDRs rather than with a currency specified by the Fund amounted to SDR 838 million, somewhat below the level of SDR 930 million in 1980/81. But the proportion of repurchases made in SDRs has steadily increased from about 10 per cent in 1978/79 to about 33 per cent in 1980/81 and to 42 per cent in 1981/82. The main users of SDRs in repurchases during 1981/82 were the United Kingdom (SDR 283 million), Spain (SDR 99 million), Pakistan (SDR 54 million), and Israel (SDR 62 million).

Outflows

SDRs transferred from the General Resources Account to members amounted to SDR 2,697 million, compared with SDR 2,824 million in 1980/81. As in previous years, the major outflow was the transfer of SDRs to members in purchases, which amounted to SDR 2,035 million. These transfers accounted for 42.1 per cent of the total purchases during the year that were financed from the Fund’s ordinary resources.

With more countries opting to receive remuneration in the form of SDRs, there has been a substantial increase during the past two years in both the amount of remuneration paid in SDRs and in the number of members receiving remuneration payments in SDRs. Remuneration paid by the Fund on members’ net creditor positions totaled the equivalent of SDR 372.8 million in 1980/81, made to 79 members, of which 72 members received SDR 348 million in SDRs. In 1981/82, one remuneration on net creditors’ positions totaled SDR 908.6 million, made to 81 members, of which 74 members received SDR 860.6 million in SDRs.

The Fund used a total of SDR 287 million to pay interest and make repayments of principal to lenders to the Fund. The most important items were repayments to eight countries of SDR 144 million of Fund borrowing under the oil facility and interest payments of SDR 124 million to three countries on Fund borrowing under the supplementary financing facility. The General Resources Account also sold SDR 27 million to countries needing SDRs in order to pay charges to the Fund.

The SDR holdings in the General Resources Account remained in the range of SDR 4.7 billion to SDR 5.5 billion throughout 1981/82—a much higher level than for any previous financial year. This high level, together with the historically high SDR interest rate, resulted in a sharp rise to SDR 657 million in the interest receipts of the General Resources Account on its SDR holdings.

SDR as a Unit of Account Outside the Fund

The SDR, which is the unit of account for Fund transactions and operations and for its Administered Accounts, is being increasingly used outside the Fund as a unit of account (or as the basis for a unit of account). Fourteen international and regional organizations 25 and various international conventions used the SDR to express monetary magnitudes, notably in conventions expressing liability limits for currencies in the international transport of goods and services. The United Nations Commission on International Trade Law and the Committee on International Monetary Law of the International Law Association are studying the possibility of developing a maintenance-of-value clause for inclusion in international conventions. There has been limited use of SDRs for invoicing of internationally traded goods and services, which reflects partly the fact that it has only recently become practicable to make payments in SDRs and partly the lack of familiarity with the SDR and its potential advantages. However, the SDR is now used to denominate a wide range of private financial instruments and obligations,26 ranging from current account deposits to ten-year syndicated credits, a development which was stimulated by the reduction from 16 to 5 in the number of currencies in the SDR valuation basket, effective January 1, 1981.

SDR as a Currency Peg

In addition to the uses of the SDR as a unit of account, the SDR also functions as a currency peg. When a member pegs its currency to the SDR, the value of its currency is fixed in terms of the SDR and is set in terms of currencies by reference to the SDR value of those currencies as calculated and published by the Fund. During the year ended May 31, 1982, a new member, Vanuatu, joined the list of members pegging their currencies to the SDR, bringing the total number of such members to 15.

Administered Accounts

The Fund administers as a Trustee, in addition to its Staff Retirement Plan, three accounts for member countries, namely, the Trust Fund, the oil facility subsidy account, and the supplementary financing facility subsidy account. These administered accounts are separate from the Fund’s General Department and the Special Drawing Rights Department.

The Trust Fund was terminated as of April 30, 1981 27 and the responsibilities of the Fund are currently confined to the receipt and disposition of interest and loan repayments and the completion of any unfinished business. It was decided that SDR 1,500 million of the repayments would be used to provide concessional balance of payments assistance to low-income developing members in need of such assistance under arrangements similar to those set forth in the Trust Fund Instrument. Two installments of semiannual interest payments were collected, in June and December 1981, for a total amount of SDR 14.5 million, and the first repayments of Trust Fund loans were due in July 1982.

Oil Facility Subsidy Account

The oil facility subsidy account was established on August 1, 1975 to assist Fund members most seriously affected by oil price increases to meet part of the cost of using the 1975 oil facility. Subsidy payments are calculated as a percentage per annum of the average daily balances, subject to charges, of the Fund’s holdings of eligible members’ currency outstanding under the 1975 oil facility. The Executive Board, following the annual review for 1981/82, approved subsidy payments at the rate of 5 per cent per annum to the eligible beneficiaries. Since the average cost of using the 1975 oil facility was 7.875 per cent per annum for the eligible beneficiaries, a subsidy at the rate of 5 per cent per annum effectively reduced the cost of using the facility to about 2.875 per cent per annum in 1981/82.

For 1981/82, subsidy payments totaling SDR 9.3 million were made in June 1982 to 16 of the 18 original beneficiaries and to the 7 additional beneficiaries. (See Table 27.) The balance remaining in the subsidy account after these payments, together with expected contributions and investment income, will be available for subsidy payments to eligible beneficiaries in 1983. It is estimated that there will be a balance of some SDR 11 million left over after subsidy payments are made in 1983. The disposition of these resources will be considered at the next annual review in 1983.

Table 27.Oil Facility Subsidy Account: Total Use of 1975 Oil Facility by Beneficiaries, and Subsidy Payments for Financial Year Ended April 30, 19821(In millions of SDRs)
Total UseSubsidy at 5 Per Cent
of 1975Cumulative
Oil FacilityAmountto date
Original beneficiaries:
Subsidy for financial year
ended April 30, 1982
Bangladesh40.470.6610.19
Cameroon11.790.212.96
Central African Republic2.660.040.67
Egypt31.680.617.90
Haiti4.140.071.04
India201.3426.95
Ivory Coast10.351.42
Kenya27.930.407.08
Mali3.990.080.99
Mauritania5.320.101.33
Pakistan111.011.6028.07
Senegal9.910.132.52
Sierra Leone4.970.091.24
Sri Lanka34.130.578.58
Sudan18.300.314.67
Tanzania20.610.255.25
Western Samoa0.420.010.11
Yemen, People’s
Democratic Republic of12.020.193.01
Subtotal551.035.30113.98
Additional beneficiaries:
Subsidy for financial year
ended April 30, 1982
Grenada0.490.010.12
Malawi3.730.060.94
Morocco18.000.374.47
Papua New Guinea14.800.022.75
Philippines152.032.3838.30
Zaïre32.530.678.07
Zambia29.720.523.89
Subtotal251.304.0258.54
Total802.339.32172.52

Purchases began in July 1975 and continued until May 1976. The subsidy amounts shown are calculated as a percentage per annum of the average daily balances, subject to charges, of the Fund’s holdings of each eligible member’s currency outstanding under the 1975 oil facility during the year.

Purchases began in July 1975 and continued until May 1976. The subsidy amounts shown are calculated as a percentage per annum of the average daily balances, subject to charges, of the Fund’s holdings of each eligible member’s currency outstanding under the 1975 oil facility during the year.

The subsidy account is financed by contributions from 24 members of the Fund and Switzerland. (See Table 28.) The funds received are invested in U.S. Government obligations until the subsidy payments are made to the beneficiaries. Promised contributions over the life of the subsidy account total SDR 160 million. Actual contributions by April 30, 1982 amounted to SDR 159.9 million.

Table 28.Oil Facility Subsidy Account: Contributions(In millions of SDRs)
ContributorsAnticipated

Total

Contributions1
Contributions

Received as of

April 30 19822
Australia5.7005.700
Austria2.3002.300
Belgium5.6005.600
Brazil1.8501.850
Canada9.5009.500
Denmark2.2001.886
Finland1.6001.600
France12.90012.678
Germany, Federal
Republic of13.70013.720
Greece0.6000.597
Iran6.0006.000
Italy8.6008.600
Japan10.30010.300
Luxembourg0.1100.108
Netherlands6.0006.000
New Zealand1.7001.635
Norway2.1002.100
Saudi Arabia40.00040.000
South Africa1.3501.350
Spain3.4003.400
Sweden2.8002.800
Switzerland3.2853.285
United Kingdom12.05012.005
Venezuela6.0006.000
Yugoslavia0.9000.900
Total160.545159.913

In some cases where contributions are being made in installments, budgetary approval will be required in each year that a contribution is to be made.

SDR amounts may be subject to small adjustments owing to exchange rate changes.

In some cases where contributions are being made in installments, budgetary approval will be required in each year that a contribution is to be made.

SDR amounts may be subject to small adjustments owing to exchange rate changes.

Supplementary Financing Facility Subsidy Account

The supplementary financing facility subsidy account was established in December 1980 to reduce the cost for low-income developing members of using the supplementary financing facility.28 Subsidy payments are calculated as a percentage per annum of the average daily balance of the Fund’s holdings of a member’s currency as a result of all purchases under the supplementary financing facility and under the Fund’s policy on exceptional use, that is, they are calculated in the same way as charges.

The first subsidy payments, totaling SDR 22.9 million, were made on December 17, 1981 to 21 eligible members in respect of holdings through June 30, 1981. (See Table 29.) Eligible countries are divided into two groups: those with per capita incomes in 1979 equal to or below the per capita income used to determine eligibility for assistance from the International Development Association (IDA) receive the full rate of subsidy, which does not exceed 3 per cent per annum; those with a per capita income in 1979 above the IDA level but not more than that of the member that had the highest per capita income of those countries that were eligible to receive assistance from the Trust Fund receive subsidies at one half the full rate. The payments in December 1981 were made at the maximum rates, that is, 3 per cent and 1.5 per cent.

Table 29.Supplementary Financing Facility Subsidy Account: Total Drawings Under Supplementary Financing Facility by Eligible Members, and Subsidy Payments(In millions of SDRs)
Total

Drawings to

June 30, 1981
Subsidy Payment

December 17,1981
Recipients of Subsidy at 3 per cent
Bangladesh110.01.27
Bolivia25.50.86
Dominica0.71
Guyana22.80.83
Kenya50.10.76
Liberia18.90.30
Madagascar22.20.23
Malawi23.10.38
Mauritania8.80.13
Pakistan174.51.40
Philippines233.03.78
Senegal20.60.39
Sierra Leone17.20.10
Sudan127.82.47
Tanzania16.30.36
Togo7.30.07
Zambia23.41
Subtotal878.816.74
Recipients of Subsidy at 1.5 per cent
Ivory Coast22.10.10
Mauritius51.00.69
Morocco109.70.90
Peru195.14.50
Subtotal377.96.18
Total1,256.722.92

Dominica received a subsidy payment of SDR 4,419.

Subsidy paid in respect of Fund holdings in excess of 200 per cent of quota under the Fund’s policy on exceptional use, which amounted to SDR 6.6 million on June 30, 1981.

Dominica received a subsidy payment of SDR 4,419.

Subsidy paid in respect of Fund holdings in excess of 200 per cent of quota under the Fund’s policy on exceptional use, which amounted to SDR 6.6 million on June 30, 1981.

On the basis of the latest data provided by the World Bank before April 30, 1982, a total of 86 developing members had per capita incomes that made them eligible to receive a subsidy. As of April 30, 1982, 21 of these eligible members had purchases outstanding under the supplementary financing facility for a total amount of SDR 1,949 million, and the undrawn supplementary financing facility commitments of 13 of these members under stand-by and extended arrangements amounted to SDR 1,341 million. In addition, two members—Zambia and Sri Lanka—had balances equivalent to SDR 13 million outstanding under the Fund’s policy on exceptional use.

The primary source of funds for the account will be SDR 750 million of repayment of, and interest on, Trust Fund loans, which are transferred to the account via the special disbursement account. By April 30, 1982, the account had received SDR 14.99 million, all from interest payments. These transfers will increase in 1982/83 and 1983/84 as repayments of Trust Fund loans begin. In addition, the account is financed through voluntary contributions in the form of donations and loans and through income on the investment of resources held pending disbursement. Details of expected contributions and loan receipts, together with amounts received by April 30, 1982, are shown in Table 30. Pending the second payment of subsidy, the investments of the account are held in SDR-denominated time deposits with the Bank for International Settlements; on April 30, 1982, they amounted to SDR 30.9 million, with accrued interest of SDR 1.5 million.

Table 30.Supplementary Financing Facility Subsidy Account: Contributions(In millions of SDRs)
ContributorCommitmentReceived to

April 30, 1982
Donations
Australia2.02.0
Austria1.21.2
Denmark1.5
France9.39.3
Netherlands4.14.1
Norway1.41.4
Saudi Arabia46.0112.8
Sweden2.21.1
Switzerland2.42.4
Subtotal70.134.3
Loans
Belgium4.43.1
Gabon1.0
Luxembourg0.20.2
Subtotal5.63.3
Total75.737.6

US$52 million valued at the exchange rate of SDR 1 equals US$0.885211 as of April 30, 1982.

US$52 million valued at the exchange rate of SDR 1 equals US$0.885211 as of April 30, 1982.

Consultations with Member Countries

After the Second Amendment of the Articles of Agreement, regular Article IV consultations with members have become the principal vehicle for the exercise of Fund surveillance over the exchange rate policies of individual member countries. The role of Article IV consultations is important because of their frequency and regularity and because exchange rate policies can only be judged in the context of an overall appraisal of a country’s economic and financial situation. Article IV consultations are required, in principle, to take place annually and to be completed not later than three months after the termination of discussions between the member and the staff. In actual implementation, it has I been impossible to adhere to the objective of annual consultations, as already noted in Chapter 2. Where appropriate, the Executive Board, at the end of Article IV consultation discussions, renders a decision concerning matters of Fund jurisdiction.

In 1981/82, the Fund completed 79 regular Article IV consultations, of which 47 were with countries availing themselves of the transitional arrangements of Article XIV, and 32 with countries that had formally accepted the obligations of Article VIII. Of these consultations completed in the financial year, 25 had been initiated in the previous year, whereas 31 of those initiated in 1981/82 remained outstanding at the end of the year.

During 1981/82, one country, St. Vincent and the Grenadines, formally accepted the obligations of Article VIII, Sections 2, 3, and 4. At the end of the financial year, 54 members had Article VIII status, 88 members were availing themselves of the transitional arrangements of Article XIV, and three members—Vanuatu, Antigua and Barbuda, and Belize—had yet to complete formal procedures to establish Article VIII or Article XIV status in the Fund.

In addition to the regular Article IV consultations, special consultations were held with major industrial countries in connection with the World Economic Outlook review by the Executive Board, and the staff has informally visited some countries to keep informed of important developments and to ascertain the member’s reasons for particular policy actions.

Training and Technical Assistance

During 1981/82, technical assistance continued to be made available at the request of members. This assistance took the form of training at headquarters, staff missions, and the stationing of staff members and outside experts in member countries, as well as that customarily provided through the Fund’s consultation procedures under Article IV. As noted earlier in this chapter, the Executive Board carried out in May 1982 a comprehensive review of the technical assistance provided by the Central Banking Department and the Fiscal Affairs Department, with the support of the Legal Department.

During the financial year, the IMF Institute introduced a new course on Techniques of Economic Analysis, bringing the number of training courses to eleven. As in the previous year, the Institute organized—with the Fiscal Affairs Department—a seminar on budgeting and expenditure control in which 22 officials from member countries took part. Total attendance at the training courses was 343, an increase of 27 per cent over the previous year. Since its inception in 1964, the Institute has trained 3,226 participants from 137 countries. In April 1982, the Institute began implementing its external training program by conducting a seminar in Fiji, which was attended by 22 Fiji officials.

The Institute’s principal course, on Financial Analysis and Policy, presents an exposition of the Fund’s procedures and policies, and examines the tools of economic analysis and forecasting. It devotes special attention to the instruments of monetary, fiscal, and balance of payments policies that are being employed under changing national and international conditions. This course was conducted in English for 18 weeks, and it provided special facilities for Arabic-speaking participants, including counseling sessions and workshops in Arabic, as well as translation and simultaneous interpretation into that language. The course on Financial Programming and Policy, which was introduced last year, was conducted in English, French, and Spanish, for 12 weeks in English and Spanish and 16 weeks in French. The course is policy oriented and is designed for officials involved in the elaboration of financial policy who already have a good knowledge of the modern tools of economic analysis. The new course on Techniques of Economic Analysis was conducted in English and French, both for eight weeks. It describes the principal macroeconomic accounts, the tools of economic analysis, and the Fund’s policies and procedures, and is intended for officials who have a limited knowledge of macroeconomic analysis.

The eight-week course on Balance of Payments Methodology was presented twice in English in collaboration with the Bureau of Statistics. It focuses on the concepts and definitions that are used in the Fund’s Balance of Payments Manual, and helps member countries to improve their balance of payments statistics. The ten-week course on Public Finance was offered twice (in English and French) in cooperation with the Fiscal Affairs Department. It deals with the objectives, instruments, and procedures of public finance, emphasizing the fiscal problems of developing countries. The course on Government Finance Statistics was conducted in English, in cooperation with the Bureau of Statistics, for eight weeks. This course applies the concepts, definitions, and procedures in the Draft Manual on Government Finance Statistics for compiling statistics from accounts in the public sector.

Technical assistance was provided by the Central Banking Department through the assignment of resident experts and through advisory services. During the financial year, experts and consultants served in 123 assignments in executive or advisory positions with 52 central monetary institutions and provided about 76 man-years of assistance, most of which was in the fields of research and statistics, accounting, bank supervision, banking and exchange operations, and controls. Departmental staff carried out eight advisory missions and participated in seven missions led by area departments. Advice was given on topics that include central banking and financial system legislation (in cooperation with the Legal Department), mobilization of savings, organization and operation of central banks, structure and development of financial systems, and use of policy instruments.

The Fiscal Affairs Department has continued to provide technical assistance through staff missions, staff assignments in the field, and the services of the panel of experts. Assistance was furnished mainly in the areas of fiscal policy, tax and customs administration and legislation (with the assistance of the Legal Department), budget systems and procedures, accounting, auditing, and financial reporting. During 1981/82, technical assistance was given to 52 countries, compared with 38 countries during 1980/81; 7 countries received assistance for the first time. There were 34 long-term and 41 short-term assignments in the field, totaling 75 individual assignments and 381 man-months; 55 panel members and 22 staff members undertook technical assistance work. Staff members continuously visit countries to review progress and to advise on requests for further assistance and also to support and guide the field experts from headquarters.

Technical assistance continued to be provided by the Bureau of Statistics, mainly through missions to member countries, through the training of national technicians at Fund headquarters, and through the training courses given by the IMF Institute. The Bureau’s assistance is chiefly in the areas of money and banking, balance of payments, government finance, and general statistics. In recent years, however, the Bureau has also assisted in the development of computerized data bases in a number of member countries, a form of assistance that seems likely to increase in the future. During 1981/82, Bureau staff participated in 80 technical assistance missions to 63 countries, most of which were organized by the Bureau. The Bureau also assisted in four statistical seminars organized by regional institutions; provided the main course lecturers at the balance of payments methodology and government finance statistics courses; and participated in the other courses of the IMF Institute. In addition, 18 officials from countries or regional organizations visited the Bureau for training in various fields of statistics.

Relations with Other International Organizations

The uncertain condition of the world economy enhances the need for coordination and cooperation among those international and regional organizations especially concerned with economic matters and world trade. To this end, the Fund continued its program of consultations with and assistance to a variety of such organizations during the past year. In addition to the World Bank, with which the Fund has had a special relationship over the years, close ties are maintained with the United Nations (UN) and its relevant organs; the Organization for Economic Cooperation and Development (OECD); the General Agreement on Tariffs and Trade (GATT); the Commission of the European Communities (CEC); the Bank for International Settlements (BIS); the Organization of American States, especially its Inter-American Economic and Social Council and its Permanent Executive Committee; and regional development and financial institutions in Africa, Asia and the Pacific area, Latin America and the Caribbean, and the Middle East.

Continuous liaison is carried out by the Special Representative to the United Nations; the European Office in Paris, particularly with the BIS, the CEC, and the OECD; and the Geneva office, especially with the UN Conference on Trade and Development (UNCTAD) and the GATT. Their efforts are supplemented by the assignment of senior officials and technical specialists when required. Liaison activities include attendance at meetings, participation in seminars and expert groups, and exchange of information and pertinent documents.

The Managing Director delivered his annual address to the UN Economic and Social Council on July 3, 1981 in Geneva, and spoke at a meeting of the Administrative Coordination Committee of the United Nations in Rome. He also addressed a Ministerial Meeting of the OECD in Paris, and attended the meetings of the UNCTAD Intergovernmental Group of Twenty-Four on International Monetary Affairs and of the Group of Ten ministers and central bank governors held at the time of the Interim and Development Committee meetings.

Because of its experience in economic and financial matters, the Fund was called upon by several regional organizations to provide them with technical assistance. Staff members advised on the design and development of research projects for the South-East Asia Central Banks Research and Training Centre, and also advised that organization on new training activities and provided lecturing assistance for a course on financial analysis and policy. Assistance in the field of interest rate policies and related matters was given to the Central American Monetary Council (CAMC) in the form of staff participation in a series of commemorative lectures on the occasion of the twentieth anniversary of the foundation of the Central American Clearing House. Staff also participated in a follow-up program of technical discussions among the members of the CAMC’s Monetary Policy Committee, composed of Directors of Research of the five Central American central banks. The African Centre for Monetary Studies requested that the Fund assist in the drafting of rules and regulations to govern the operations of the payments and clearing arrangement then being established for the eastern and southern African region. Fund staff also helped the Commission of the European Communities to appraise the suitability of the macroeconomic and international trade models used for short-term and medium-term analyses, and advised that body on the direction of future work. At the request of the East Caribbean Currency Authority (ECCA), Fund representatives attended a meeting of the Financial Secretaries of ECCA member countries on the subject of exchange control policies in the ECCA region. The Fund also assisted the South Pacific Commission in conducting a subregional training course on balance of payments statistics, held in Fiji, by providing two lecturers. Lecturers were also provided for two regional seminars organized by the Banque Centrale des Etats de l’Afrique de l’Ouest in Dakar on price statistics and government statistics, respectively.

Reflecting the Fund’s concern in the areas of aid coordination and debt renegotiation, staff participated in meetings of the World Bank Consultative Groups on Aid Coordination for Colombia, Kenya, Uganda, and Zaïre, as well as the India and Pakistan Consortia and the Aid Groups for Bangladesh, Nepal, and Sri Lanka, all held under World Bank auspices; the Chad Donor’s Conference convened by the French Government; and a meeting of OECD countries held to discuss balance of payments support for Uganda. The Fund was also represented at debt renegotiation meetings for the Central African Republic, Liberia, Senegal, Sudan, Uganda, and Zaïre, held under the aegis of the Paris Club. At the invitation of the Chairman of participating creditor countries, Fund staff attended a Paris meeting on Poland’s official external debt service obligations.

Long-standing cooperative arrangements with the GATT regarding consultations with common member countries on trade restrictions imposed for balance of payments purposes involved staff participation in those consultations and provision of background documents. The thirty-seventh session of the Contracting Parties to the GATT was attended by a Fund representative, and Fund staff were present at meetings of the Council of Representatives, at a special session on notification and surveillance procedures with respect to trade policy measures and the international trading system, and at various other GATT meetings.

Executive Directors and Staff

A list of Executive Directors and their voting power on April 30, 1982 is given in Appendix IV. The changes in membership of the Executive Board during 1981/82 are shown in Appendix V.

In the year ended April 30, 1982, there were 124 appointments to the Fund’s regular staff and 62 separations. At the end of the financial year, the staff numbered 1,525 and was drawn from 97 countries.

Publications

The publications issued by the Fund during 1981/82 are listed in Appendix I, Table I.15.

Annual Report, 1981, pages 89-90.

The “reserve tranche” is measured by the extent to which the Fund’s holdings of a member’s currency in the General Resources Account, after deducting holdings excluded under Article XXX (c), are less than its quota.

Executive Board Decision No. 6831-(81/65), adopted April 22, 1981, effective May 1, 1981, Selected Decisions of the International Monetary Fund and Selected Documents, Ninth Issue (Washington, 1981), page 98.

Executive Board Decisions No. 7059-(82/23) and No. 7060-(82/23), adopted February 22, 1982 and reproduced in Appendix II.

Executive Board Decision No. 4377-(74/l 14), adopted September 13, 1974 as amended by Decisions No. 6339-(79/179), December 3, 1979, and No. 6830-(81/65), April 22, 1981, effective May 1, 1981, Selected Decisions of the International Monetary Fund and Selected Documents, Ninth Issue (Washington, 1981), page 26.

See Executive Board Decision No. 6224-(79/135), adopted August 2, 1979, Selected Decisions of the International Monetary Fund and Selected Documents, Ninth Issue (Washington, 1981), page 56.

Selected Decisions of the International Monetary Fund and Selected Documents, Ninth Issue (Washington, 1981), page 59. See also Annual Report, 1981, pages 84-85.

“Established under Executive Board Decision No. 5508-(77/127), adopted August 19, 1977, Selected Decisions of the International Monetary Fund and Selected Documents, Ninth Issue (Washington, 1981), page 31.

Executive Board Decision No. 7048-(82/13), adopted February 5, 1982 and reproduced in Appendix II.

See the section “Supplementary Financing Facility Subsidy Account,” below, and see also Annual Report, 1981, pages 105 and 106.

Executive Board Decision No. 6783-(81/40), adopted March 11, 1981, Selected Decisions of the International Monetary Fund and Selected Documents, Ninth Issue (Washington, / 1981), page 39. See also Annual Report, 1981, pages 85-88.

Paragraph 4(h) of Schedule B requires that a member repurchase within four years from the date of the Second Amendment of the Articles of Agreement, that is, before April 1, 1982, any balance of its currency held by the Fund in excess of 75 per cent of quota at the date of the Second Amendment which was not otherwise subject to repurchase.

Executive Board Decisions No. 5704-(78/39), adopted March 22, 1978, and No. 6172-(79/101), adopted June 28, 1979, Selected Decisions of the International Monetary Fund and Selected Documents, Ninth Issue (Washington, 1981), pages 91 and 93. Also see Annual Report, 1979, page 75.

The Fund’s overall liquidity position is defined as the relationship between its immediately usable assets, comprising SDRs in the General Resources Account and usable currencies, and its liquid liabilities, consisting of members’ liquid claims on the Fund (reserve positions, undrawn balances of ordinary resources, and lenders’ claims on the Fund). The Fund’s holdings of gold, amounting to 103.440 million ounces (valued at SDR 35 per fine ounce), are not included in the category of immediately usable resources.

Remuneration for the financial year 1981/82, which is paid on May 1, mostly in SDRs, reduces usable uncommitted ordinary resources to about SDR 22.1 billion.

Executive Board Decision No. 7040-(82/7), adopted January 13, 1982 and reproduced in Appendix II.

Executive Board Decision No. 6843-(81/75), adopted May 6, 1981, Selected Decisions of the International Monetary Fund and Selected Documents, Ninth Issue (Washington, 1981), page 143.

The 18 countries are Australia, Austria, Belgium, Canada, Denmark, Finland, France, the Federal Republic of Germany, Ireland, Italy, Japan, the Netherlands, Norway, South Africa, Spain, Sweden, Switzerland, and the United Kingdom.

Executive Board Decision No. 6863-(81/81), adopted May 13, 1981 as amended by Decision No. 6870-(81/83), adopted June 1, 1981, Selected Decisions of the International Monetary Fund and Selected Documents, Ninth Issue (Washington, 1981), page 173.

Executive Board Decision No. 6864-(81/81), adopted May 13, 1981, Selected Decisions of the International Monetary Fund and Selected Documents, Ninth Issue (Washington, 1981), page 176.

Executive Board Decisions No. 6844-(81/75) and No. 6845-(81/75), adopted May 5, 1981, Selected Decisions of the International Monetary Fund and Selected Documents, Ninth Issue (Washington, 1981), pages 186 and 187.

Ibid.

See Annual Report, 1981, pages 93-94.

Executive Board Decisions No. 6000-(79/l)S, adopted December 28, 1978, as amended by Decision No. 6438-(80/37)S, adopted March 5, 1980; No. 6001-(79/l)S, adopted December 28, 1978; No. 6053-(79/34)S, adopted February 26, 1979, as amended by Decision No. 643 8-(80/37)S, adopted March 5, 1980; No. 6054-(79/34)S, adopted February 26, 1979, as amended by Decision No. 6438-(80/37)S, adopted March 5, 1980; No. 6336-(79/178)S, adopted November 28, 1979; No. 6337-(79/178)S, adopted November 28, 1979; and No. 6437-(80/37)S, adopted March 5, 1980. See Selected Deci-sions of the International Monetary Fund and Selected Documents, Ninth Issue (Washington, 1981), pages 249-59.

These comprise the African Development Bank, African Development Fund, Arab Monetary Fund, Asian Clearing Union, Asian Development Bank, Development Bank of the Great Lakes Countries, Economic Community of West African States, European Conference of Postal and Telecommunications Administrations, Inter-Asian Development Bank, International Centre for Settlement of Investment Disputes, International Development Association, International Fund for Agricultural Development, Islamic Development Bank, and Nordic Investment Bank.

For details, see Chapter 2, pages 69-70.

Executive Board Decision No. 6704-(80/185)TR, adopted December 17, 1980, Selected Decisions of the International Monetary Fund and Selected Documents, Ninth Issue (Washington, 1981), page 285.

Executive Board Decision No. 6683-(80/155)G/TR, adopted December 17, 1980, Selected Decisions of the International Monetary Fund and Selected Documents, Ninth Issue (Washington, 1981), page 287.

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